Corporate Tax Reform:  Setback for Manufacturers, but Opportunities Remain

The Senate Finance Committee this Thursday delivered a setback to corporate tax reform benefiting Vermont-based manufacturers and other exporters of goods.  However, AIV continues to work toward enacting these reforms this year, and engagement by Vermont employers will be very important in achieving this goal.

The Committee has been working on S.53.  The House passed a version of this bill last year that included a number of changes to the corporate income tax code.  Two of these House-passed provisions would significantly benefit Vermont-based manufacturing and other exporting sectors – adoption of “single sales apportionment” and repeal of the “throwback rule”.  These provisions have long been top priorities for AIV.

The Senate Finance Committee has informally decided to delete the provision adopting single sales apportionment, although it is currently keeping the repeal of the throwback rule.  It has also decided to delete a provision increasing the alternative corporate minimum tax, as well as a number of other provisions in the House-passed bill that addressed non-corporate income tax issues.

Single sales apportionment and throwback repeal are the only two provisions in S.53 that clearly and significantly benefit Vermont manufacturing and exporters, with the apportionment change accounting for the most significant benefit.  AIV did express our concerns with the increase in the alternative minimum corporate tax, although because it is based on gross receipts from Vermont sources it’s impact on manufacturers generally is uncertain.

It is currently expected that the House and Senate will eventually conference to develop a compromise version of S.53.  AIV will be working to restore the adoption of single sales apportionment in any final legislation, as well as dropping or modifying any changes to the alternative minimum tax to protect Vermont based manufacturing and other productive and technology sectors.

Vermont manufacturers and other exporting businesses are strongly encouraged to watch for further updates and action alerts and to contact us at to learn more about these issues and how they could impact your business, as well as to discuss options for engagement.

Basic Background on Single Sales Apportionment and the Throwback Rule

Currently Vermont determines a corporation’s income tax liability by averaging the Vermont share of that company’s (and any affiliated corporate family’s) sales, property, and payroll, and then taxing that portion of the company’s overall national income.  These three factors are weighted such that 50% is based on the Vermont share of sales, and 25% each on the Vermont share of property and payroll.

By adopting the “single sales factor” approach, property and payroll would be dropped, so that the taxable income of a corporation will be based on the percentage of national sales that are actually to Vermont.  This effectively reduces the tax liability of corporations that have Vermont facilities and employees and export goods outside the state – primarily manufacturers.  All of Vermont’s neighbors and a majority of states nationally have adopted single sales factor apportionment.

An important provision along with moving to single sales is the repeal of the “throwback rule”.  Under the throwback rule, any income earned from sales in another state that does not tax that income (generally because the Vermont company or any affiliated group does not have a taxable nexus in the other state) is added to the company’s Vermont income – basically treating it as if it was from Vermont sales.

The throwback rule is fundamentally arbitrary.  With throwback, two otherwise identical Vermont companies could have different tax liabilities simply because their sales out of Vermont are across a different mix of states with or without a taxable nexus for each company.  Similarly, the same company with identical performance year over year, including Vermont sales, could have different tax liabilities simply because their sales out of Vermont change across states. With the relative size of Vermont’s market, even adding a small number of other state sales can lead to significant changes in taxable income.

For more information about these or other provisions in S.53, please contact us at